IDR: USD/IDR Little Changed, Uptrend Persists, BI To Remain In FX Market

ACGBs (YM +2.0 & XM flat) are slightly stronger after a relatively subdued start to the week.

• Cash US tsys are flat to 1bp richer.
• Cash ACGBs have twist-steepened, with yields 3bps lower to 1bp higher. The AU-US 10-year yield differential is at +56bps. At this level, the differential sits just below its cycle high set earlier this month, the widest since mid-2022.
• December’s price action has consolidated the differential’s breakout above the ±30bps range that had prevailed since November 2022. This widening has occurred alongside a steady increase in market-implied expectations for the RBA cash rate.
• Indeed, a simple regression of the 10-year yield differential against the AU–US 1Y3M differential over the past two years suggests the current spread is around fair value.
• Bills pricing is +3 to +4.
• RBA-dated OIS pricing has softened 1-4bps today. Nevertheless, pricing continues to show tightening across all meetings, with the probability of a 25bp hike rising from 29% for February to 81% by June and 150% by December 2026.
• Tomorrow, the local calendar will see S&P Global PMIs (Services & Composite) and Consumer Confidence.  
• The AOFM plans to sell A$1000mn of the 4.25% 21 October 2036 bond on Wednesday.

Figure 1: AU-US Cash 10-Year Yield Differential (%)

Source: Bloomberg Finance LP / MNI

The BBDXY has had a range today of 1206.24 - 1207.71 in the Asia-Pac session; it is currently trading around 1206, -0.05%.  The USD has failed to react to a weak close in US stocks or US yields in the long-end moving higher. Is it lagging or correctly seeing the moves as unconvincing that probably won’t follow through, or could it also be pricing in the potential Supreme Court decision that some believe is imminent. On the day look for initial resistance again back towards the 1208-1209 area and above here the more important 1212-1214 area where sellers should remerge. Support is in the 1204/05 area; a move below here would target 1198-1200.

• EUR/USD -  Asian range 1.1729-1.1745, Asia is currently trading 1.1735. The pair is trading sideways trying to hold onto its gains above 1.1700. On the day, first support is toward 1.1705-1720 initially, if this does not hold, look for demand to then return in the 1.1660-1.1680 area.
• GBP/USD - Asian range 1.3355-1.3381, Asia is currently dealing around 1.3360. The pair stalled above 1.3400 at the end of last week. On the day GBP has initial support around the 1.3325-1.3345 area, if this does not hold look for a pullback to the more important 1.3250/80 area. I continue to watch for signs of GBP potentially topping out.
• Cross asset : SPX +0.20%, Gold $4330, US 10-Year 4.176%, BBDXY 1206, Crude Oil $57.74
• Data/Events : Germany Wholesale Price Index MoM/Bloomberg Dec. Germany Economic Survey, France Bloomberg Dec. France Economic Survey, Spain Bloomberg Dec. Spain Economic Survey, EZ Bloomberg Dec. Eurozone Economic Survey

Fig 1: GBP/USD Spot Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P

• Gold has continued last week's rally Monday as equity markets across the region have a weak start.  
• Gold is up +0.67% to US$4,328.41 and is now -0.60% below the October high of US$4,356.30
• Gains in recent days sees gold now overbought on the 14-day relative strength index.  Having spent most of September and October overbought gold then moderated back below.
• Gold will have the dual forces impacting it over the coming days being equity markets and the technical outlook.  Equity volatility could provide a natural bid to gold into month end yet US interest rates will continue to be key in the next move for bullion.
• As data continues to flow in the US post shutdown, there will be a lot to digest for gold markets as they assess the probability of rate cuts in 2026.
• Currently the market has only 6bps of cuts priced in for the next FED meeting, suggesting that should this week's data be weaker than expected, markets could look to price in greater expectations for cuts.
• Weaker data could feed into gold prices also. Given gold has no coupon, it is very sensitive to rate cuts (reduces funding costs) and this week could be provide further input into whether the next FED meeting could become a 'live' meeting.
• CMOC Group, one of China’s biggest miners, extended its push into precious metals with a $1 billion deal to buy the Brazilian operations of Equinox Gold Corp.  It will take full ownership of two Equinox entities — Leagold LatAm Holdings BV and Luna Gold Corp. — that control several mines or deposits in the South American nation. (per BBG)
• ANZ Group analysts have restated their forecasts for gold, predicting it will reach US$4,800 in 2026.